Collateral and Capital Structure

@inproceedings{Viswanathan2009CollateralAC,
  title={Collateral and Capital Structure},
  author={Sanoke Viswanathan and Adriano A. Rampini},
  year={2009}
}
This paper develops a dynamic model of firm financing based on the need to collateralize promises to pay with tangible assets, leading to a unified theory of optimal investment, capital structure, leasing, and risk management. Tangible assets required for production restrict leverage. Leasing is costly, highly collateralized financing, which enables higher leverage and faster firm growth. Financing and risk management are connected as both involve promises to pay, making incomplete risk… CONTINUE READING

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